It is high time that asset-rich baby boomers started paying their way

Politically, putting extra costs on the most politically powerful group in society, baby boomers, will be challenging. Picture: iStock

Understandably, dying is something we don’t like to think about too much. And when you look at how we pay for aged care, it shows.

The torrent of public money sprayed at residential and home care providers — more than $18 billion this year and rising rapidly — isn’t sustainable without crushing increases in income tax on younger generations.

If those generations aren’t ­resentful yet, just wait until the baby boomer generation — the richest in history — starts turning 80 en masse across the next decade and costs go through the roof. The share of the population aged over 65 is poised to rise from about 15 per cent to 23 per cent, or nine million people, by 2054, ­according to the intergenerational report.

It’s time to ask whether the 6 per cent share of aged-care costs users pay is fair. Taxpayers stump up the rest — including the ­unlucky 7 per cent of today’s 25-year-olds who, statistics insist, will never reach ­retirement age.

As the royal commission into financial services winds up this year, the inquiry into aged care will get under way. More examples of heartless profiteering from the vulnerable by another subsidised sector will emerge, providing an opportunity for far-reaching reform. The risk is sensible recommendations to ­improve compet­ition and fairness are ignored for more futile regulation that makes the problems only worse.

It already has. A year ago former Finance Department secretary David Tune ran the ruler over the aged-care sector for the Coalition and found Labor’s 2013 ­reforms had done little to make aged-care costs more sustainable.

“The most significant change is that the government’s contribution to care costs has dropped from 98 to 94 per cent of total cost, but this is a small shift,” he said. If you think that’s laughable, consider this: “Government’s share of the cost of accommodation has ­reduced to 42 per cent under the new arrangements, compared with 43 per cent under the pre (July 1) 2014 arrangements.”

More than a year on from Tune, the ­Coalition government hasn’t formally responded to the 38 recommendations, except for peremp­torily ruling out two of the most important: sticking the full value of the family home in the assets test, and uncapping the maximum ­annual and lifetime fees aged-care businesses can charge.

Bizarrely, only the first $167,000 of the value of the home is included in the asset test for ­receiving support for residential care. For home care packages, there’s no asset test at all. “Someone with a $900,000 home has significantly greater means than some­one whose home is worth $320,000, yet their contribution is the same because of the cap, all else being equal,” Tune’s ­review stated. Indeed, why should homes worth millions be shielded? In a world where wages are sluggish and asset prices have soared courtesy of no one lifting a finger, it’s a morally and economically ­absurd situation.

Even after a good decade in ­retirement, the average net wealth of the over-75s is well over $1 million, ­according to Australian Bureau of Statistics data, or about 55 per cent more than that for 35 to 44-year-old households, who have average net assets of $645,000. The net housing wealth alone of households aged 65 is more than $544,000, on average.

Forget statistics about older people living in poverty unless you think a single pensioner in a home worth $3m fits that description. ­Incomes may be low for over-65s but home ownership is very high and rarely taken into account in assessments of means.

Because so much of the cost has been pushed on to taxpayers, the money has been ravaged by fees. “Typically for a $49,500 package for someone with high care needs, there will be a 20 per cent administration fee, then a 15 per cent case management fee, and then up to a 100 per cent margin on the cost of actual service, so in many cases well less than half of the package is actually spent on the cost of direct care services,” says Jeff Gilling, an aged-care consultant.

If families had a better idea of services and costs, such systemic rorting would be harder. The government’s website, myagedcare.gov.au, isn’t up to the job.

“In many instances social workers in hospitals are having to make phone calls facility by facility,” says Craig Swanger, whose business, Care360, has aimed to rectify the gap by evaluating the more than 2650 aged-care facilities on 58 criteria.

Politically, putting extra costs on the most politically powerful group in society, baby boomers, will be challenging. The May government in Britain found just how diabolic it was in 2016, proposing to require those with assets above £100,000 to contribute more to the cost of their care. Quickly labelled a “dementia tax” by Labour leader Jeremy Corbyn, the government dropped it. In a sense, he was right: it was ­increasing costs for families whose relatives lived a long time, whether they had dementia or not.

The desire to pass on wealth to one’s children is understandable, but why should families without much wealth subsidise such ­bequests? Or why should those who aren’t fortunate to live so long have to pay for those who do?

In fact, allowing family assets to contribute more to the cost of aged care in an era when living to 90 is common will probably be the 21st-century version of estate taxes, among the fairest and most ­efficient form of taxation. Personally, I’d much rather put off paying tax until I’m old or dead and needed the money far less than I did.

Labor recently attacked the Coalition for a 2016 decision to slow funding growth for aged care, saving $1.6bn over a few years. They’ll both have to agree to far more than that unless they want to condemn everyone to penal rates of taxation.